It’s a well-known fact: On Average, women tend to live longer than men by about six years.1 But what does that mean when it comes to retirement planning and income?
From a financial perspective, longevity means that women often need either more money saved for retirement or need to spend less throughout their retirement years. That’s already a tough equation. And it gets tougher when you consider that, according to the Bureau of Labor Statistics and U.S. Census Bureau, in 2023 women earned just 84% of what men earned in full-time positions.2 While that might sound a little bleak, there’s good news: Investing wisely can help level the playing field.
Why Asset Allocation Matters So Much
When we help clients invest, one of the most important decisions we make is around asset allocation or how much to invest in growth-oriented (more volatile) assets like stocks vs. more preservation-focused (more stable) assets like bonds.
Think of it like this:
- The growth side of your portfolio is designed to help your money grow over time.
- The preservation side is there to act as a safety net you can rely on if the market takes a downturn.
A common question I get is: How does Foster Group decide how much money should be invested in the growth and preservation sides of your portfolio? The answer is part emotion, how comfortable you are with market risk, but mostly math.
A Retirement Example: Creating an Income Stream
Let’s say you’re retired and want to withdraw $50,000 a year from your investment portfolio, which totals $1,000,000.
To protect yourself from market volatility, we recommend setting aside at least eight years’ worth of withdrawals on the preservation (bond) side. That’s $50,000 × 8 = $400,000 in preservation (bonds). The remaining $600,000 stays in growth (stocks) for long-term growth.
This creates a 60/40 portfolio, 60% growth (stocks), 40% preservation (bonds). The idea is that your bond allocation covers your short-term income needs, while your stock allocation continues to grow and support the later years of retirement. Depending on your comfort with risk, you might lean more toward preservation, so that market swings don’t leave you feeling uneasy.
What About If You’re Still Working?
Let’s rewind. Suppose you’re 15+ years away from retirement. That means you’re not drawing on your portfolio yet, and you won’t need to for at least another decade and a half. In this scenario, mathematically speaking, you don’t need a preservation component yet. You could consider investing 100% in growth (stocks) to take advantage of long-term growth potential. Now, 100% invested in stocks might feel too aggressive. And that’s okay. The right balance might be 90/10 or 80/20. The key takeaway for women? Because women are likely to need their money to last longer, they may need to consider investing more aggressively than they naturally feel comfortable.
Final Thoughts: Plan for Longevity, Not Just Retirement
Retirement income planning isn’t just about how much you save; it’s about how you invest and how long that investment needs to support you. For women, longevity makes this even more important. That’s why it’s essential to work with a financial advisor who understands your unique situation and can help you build a portfolio that supports your lifestyle, both now and 30+ years into the future. At Foster Group, truly caring for our clients means taking the time to learn what’s in their hearts and helping them pursue their goals. Want to know if your portfolio is built to last? Let’s talk about it.
- MedRxIV, Changes in Life Expectancy Between 2019 and 2021: United States and 19 Peer Countries, April 2022
- U.S. Bureau of Labor Statistics “Highlights of Women’s Earnings in 2023”
